A New Way to Measure Unemployment

Dennis Jacobe, Gallup’s chief economist, puts his finger on the problem with last week’s upticked job numbers: nobody buys them.

From Gallup’s Behavioral Economy blog:

This blog mentioned in mid-September that it was possible — if unlikely, based on Gallup’s survey data that include 30,000 interviews per month — that September’s seasonally adjusted unemployment rate could fall to 7.9%. Still, Friday’s BLS report of a drop to 7.8% in the Household survey seemed to surprise everyone, as has been the case on many occasions this year.The problem is that even though the Household survey tends to be very volatile, this decline seems to lack face-validity, particularly after the prior month’s numbers. The consensus estimate was that the government would report that the unemployment rate was unchanged at 8.1% in September. GDP growth was 1.3% in the second quarter and seems to be no better this quarter. The government’s Establishment survey shows there were 114,000 new jobs created in September — very close to the consensus of 113,000 — and not sufficient to lower the unemployment rate.

That still leaves us with a problem.  But unlike most economists, Jacobe offers a pretty interesting solution:

The obvious conclusion is that a new employment measure is needed. Gallup has proposed such a measure — Payroll to Population (P2P) — the number of Americans employed full-time for an employer as a percentage of the U.S. population. This is a much simpler measure that has none of the numerous adjustments made to the seasonally adjusted unemployment rate. TheP2P deteriorated slightly to 45.1% in September from 45.3% in August, suggesting the real jobs situation was essentially unchanged last month.

Imagine that.  A simpler, clearer way to measure unemployment.  And one that has, in my favorite weasel-word of the day, “face-validity.”

And that’s really the problem, isn’t it, with the Obama administration’s claims?  They have no “face-validity.”

  1. Mark Wilson

    Mr. President, it’s time for you get out there and face validity.

  2. PsychLynne

    Face validity (in psychometrics) means that a test appears to have items that come from the area it purports to measure.  In lay terms, the test “looks” right.  It’s the least rigorous form of validity (the ability to measure what you say you are measuring) and carries little weight if other criteria of validity aren’t met.   

    I’m pretty sure there’s a comment to be made about Obama, image and face validity–I just haven’t had enough coffee to put it together.  So, I’ll leave it to the group.

  3. Last Outpost on the Right

    Face validity. A fancy way of saying that it fails the smell test.

    I have long held that the official unemployment rate measurement has always been flawed. It is based on sample data and subjective definitions of labor force participation. They say that people “gave up looking for work” because they didn’t check off the box on the bi-weekly unemployment form. People come off of unemployment and go on to disability … they’re still unemployed!

    The idea about asking SSA how many people are paying this week is a good one, but it doesn’t differentiate between full and part time work.

    Anyway, unemployment is the symptom, not the disease. An oversimplification: GDP growth is what we need to address. All else will follow.

  4. Guruforhire

    If we made it a ratio:

    p2p/workforce

    I could get behind it.

  5. ConservativeWanderer

    Face-validity? I’ve said it for quite a while, though not in those words.

    My argument has been that most people are either underemployed, unemployed, or know at least one person who is in one of those two situations.

    Those people look at the “downtick” in unemployment, look around them, and decide to believe “their lyin’ eyes” instead of the government and leftymedia (but I repeat myself).

  6. liberal jim

    No one who has any substantial knowledge of the monthly labor reports have much of a problem with the number.  It appears to be deviant and if that is the case the number will revert to the mean in the next month or so.  If this number had occurred in Oct of 2013 it would have generated 10% of the press it did.  The problem, if there is one, is that both parties want to exploit the number for political gain.  The shallowness of the journalist community who reports on this and other matters only exacerbates the problem.  If you want to improve something improve the lazy and incompetent journalist community. 

  7. Songwriter

    And where do the self-employed figure into the numbers? In the music industry (what’s left of it), there is a pretty high percentage of self- employed folks. And there are a lot fewer of us working these days, and for less money than a decade ago.

  8. KC Mulville

    The number of jobs created remained basically the same for an 8.1% rate, but … what a surprise … we dropped the reported number (you know, the number the newspapers scream in headlines) to 7.8%.

    In other news, Derek Jeter’s batting average has been raised to .623. He hasn’t gotten any more hits than normal, but, well, that’s what we counted. It’s just baseball, I guess.

  9. John Murdoch

    Unemployment statistics are only one small part of the problem: the economic statistics published by the federal government and the Federal Reserve are all based economic models–and an economic world view–that developed in the 1940s and 1950s, when most of these measures were developed. 

    My favorite example: the “trade deficit.” We have had a trade deficit every single month since the 1960s. And yet–wonder of wonders!–every month we have a net cash surplus, as foreigners sell their local currencies in order to buy dollars. 

    Got that? The government says we’re buying more stuff than we sell; the banks (and the Federal Reserve) report that we’re taking in more cash than we send abroad. 

    What gives? Trade statistics only measure shipments of things that cross ports of entry. Sell a locomotive to Colombia? Your freight forwarder, or the steamship company, will file the Shipper’s Export Declaration with the Commerce Department. 

    So what happens if you write a tool for freight forwarders and steamship companies, and sell it online to shippers in countries around the world? Where do your export sales get counted? (They don’t.)

    (More)

  10. John Murdoch

    (Cont’d from #11)

    It’s far more than Shipper’s Export Declarations: I have been amazed and amused for thirty years by the seeming gulf between the law and technology. 

    With props and love, this new proposal from Gallup is yet another example. What’s the premise of the measure? The number of people on a payroll, divided by the population. What about people who aren’t on a payroll?

    Farmers aren’t on a payroll. The self-employed aren’t on a payroll. Independent contractors aren’t on a payroll. I’m not on a payroll, Rob Long is not on a payroll, DocJay is not on a payroll–do we count? According to Gallup’s proposal, evidently not.

    Yet the growth of self-employment is one of the obvious economic changes in this decade, if not this century. Don’t believe me? Go to a Tech Meetup in Brooklyn, or Boston, or Bethlehem, or Boise. At the end of the presentation there’ll be a an “open mic” time. Stand up and ask how many people there are “cubicle-dwelling wage slaves.” I’d be stunned if more than a dozen hands went up.

  11. Mollie Hemingway

    I wonder if this payroll-population ratio would capture modern employment as well as it should. I’m part of that group of people who is not on any payroll but works far more than full-time. I’m just self-employed and handle my own benefits. It’s my impression (though I have no statistical information one way or the other) that this is an increasing phenomenon.

  12. John Murdoch
    Mollie Hemingway, Ed.: I wonder if this payroll-population ratio would capture modern employment as well as it should. I’m part of that group of people who is not on any payroll but works far more than full-time. I’m just self-employed and handle my own benefits. It’s my impression (though I have no statistical information one way or the other) that this is an increasing phenomenon. 

    You are absolutely right. What was “telecommuting” in the 1980s has become independent work today. (In a sense, we’re kind of regressing to the piece-work days of the Scottish weavers–only now it’s publishers sending manuscripts by FedEx to be picked over by editors.)

    And there are whole industries that cater to us: Meetup, GoToMeeting, LogMeIn, Staples, Mailboxes Etc. (now the UPS Store), and many more. The luxe coffee shop (Starbucks, Panera, etc.) thrives because of the self-employed. 

    And essentially none of that economic activity gets counted.

  13. liberal jim

    This is amazing.  The number surprised people.  Imagine that people can’t foretell the future.  Lets change the number.  Lets find a survey that never surprise anyone.   

    There is zero chance of replacing the current surveys simply because it would make historical comparisons impossible.   Using taxpayer money to do additional surveys when we are running trillion dollar deficits may not be a good idea.  

    There is the ADP, Gallup and several other privately funded surveys and surely more to come.  There is no lack of surveys or statistics on employment only a lack of understanding.

    I know you Republicans can’t resist trying to find a government solution to a imaginary problem, but try to show a little restraint.

  14. John Murdoch

    My fave example of government not keeping up with technology: 

    Back in the early 90s there was a grisly series of murders in Ontario, committed by a husband and wife. For some reason the judge slapped a ban on any media coverage of the trial. Including a ban on any American media covering the trial. 

    At the time I was living in Tokyo, and very active as a forum sysop on CompuServe on a forum (Ventura Publisher) owned by a Canadian company. Most of the sysops were Americans–and all the server equipment was located in Columbus, Ohio. But the forum manager was a Canadian, and another happened to be in London that day.

    The trial was a big deal–and the ban on American coverage sent the U.S. media into a self-righteous frenzy. In a spirit of mischief, I asked: 

    If I were to post a note about the state of the trial, I’d be writing in Japan, on servers physically located in Ohio. Would that be enough to send Derek [the Canadian forum manager] to jail?

    Corel’s attorney responded within minutes, “let’s not find out.” And yanked down my post.

  15. John Murdoch
    liberal jim: I know you Republicans can’t resist trying to find a government solution to a imaginary problem, but try to show a little restraint. 

    We who are tireless in our campaign to bring back semi-annual state inspections of buggies and carriages (I live in Pennsylvania) salute you. 

    But, alas, try as we might, we simply cannot compete with the Democrats when it comes to utterly, completely, stupidly pointless regulation:

    Gun microstamping could close American factories.

  16. Foxfier

    Trying to count folks who have full time employment would show how very many people are on part time for tax reasons; my sister works at Target, and it’s cheaper for them to hire more people than to risk someone hitting 40 hours a week.

  17. Aelreth
    Foxfier: Trying to count folks who have full time employment would show how very many people are on part time for tax reasons; my sister works at Target, and it’s cheaper for them to hire more people than to risk someone hitting 40 hours a week. · 32 minutes ago

    The old 37 hours 30 minutes variety?

  18. Mark Wilson
    liberal jim: This is amazing.  The number surprised people.  Imagine that people can’t foretell the future.  Lets change the number.  Lets find a survey that never surprise anyone.   

    There is zero chance of replacing the current surveys simply because it would make historical comparisons impossible.   Using taxpayer money to do additional surveys when we are running trillion dollar deficits may not be a good idea.  

    There is the ADP, Gallup and several other privately funded surveys and surely more to come.  There is no lack of surveys or statistics on employment only a lack of understanding.

    I know you Republicans can’t resist trying to find a government solution to a imaginary problem, but try to show a little restraint.

    Jim, you never cease with the condescension.  I never thought I’d hear a liberal argue that something can’t be changed because that’s the way it’s always been done.  You know it is possible to continue calculating the traditional way and introduce a new way.  Different ways of crunching the numbers give different insights to the users.

    And what on earth are you talking about with your “government solution to an imaginary problem?”

  19. Brian Clendinen

    Sorry I think the metric would not give us any better data than U-3.

     

    There is a number like that already that is more accurate. It is called labor force participation. The % of the population that is at least working part-time.

    Also the more accurate unemployment figure U-6 stayed the same in September at 14.7%. The number that gets quoted all the time is U-3. U-3 40 to 50 years ago was about as good as we could do. Now with modern technology and improvements in statical  sampling we should stop relaying on U-3 and use U-6 along with labor force participation %.

  20. Aelreth
    Brian Clendinen: Sorry I think the metric would not give us any better data than U-3.

     

    There is a number like that already that is more accurate. It is called labor force participation. The % of the population that is at least working part-time.

    Also the more accurate unemployment figure U-6 stayed the same in September at 14.7%. The number that gets quoted all the time is U-3. U-3 40 to 50 years ago was about as good as we could do. Now with modern technology and improvements in statical  sampling we should stop relaying on U-3 and use U-6 along with labor force participation %. · 35 minutes ago

    Edited 30 minutes ago

    Our office holders & office seekers should be talking about the U6 numbers like Pelosi’s gang was back in 05.